Preferential treatment of government bonds in liquidity regulation: Implications for bank behaviour and financial stability

Arbeitspapier

This paper analyses the impact of different treatments of government bonds in bank liquidity regulation on financial stability. Using a theoretical model, we show that a sudden increase in sovereign default risk may lead to liquidity issues in the banking sector, implying the insolvency of a significant number of banks. Liquidity requirements do not contribute to a more resilient banking sector in the case of sovereign distress. However, the central bank acting as a lender of last resort can prevent illiquid banks from going bankrupt. Then, introducing liquidity requirements in general and repealing the preferential treatment of government bonds in liquidity regulation in particular actually undermines financial stability. The driving force is a regulation-induced change in bank investment behaviour.

Angaben zum Objekt

• ISBN: 978-3-86304-300-1
• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: DICE Discussion Paper ; No. 301

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Financial Institutions and Services: Government Policy and Regulation ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Crises
• Thema: bank liquidity regulation ; government bonds ; sovereign risk ; financial contagion ; lender of last resort

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Neyer, Ulrike ; Sterzel, André
• Ereignis: Veröffentlichung
• (wer): Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)
• (wo): Düsseldorf
• (wann): 2018

Weitere Informationen

• Handle: http://hdl.handle.net/10419/182281
• Letzte Aktualisierung: 10.03.2025, 11:41 MEZ